News (#4 April 2020)

Biznews

Oil & Gas

Oil prices crash by 30%

On 9 March oil prices fell by more than 31% at the start of trading on Asian markets as OPEC members failed to reach an agreement on cutting output with other oil producers.

This is the worst drop in oil prices since 1991, when the Gulf War raged. Following forecasts by Goldman Sachs, the investment bank, oil may continue its fall and reach the level of USD 20-30. It is noted that due to the coronavirus, the world market faced excess supply of oil, but following the collapse of the OPEC deal, oil producers cannot get rid of the excess.

Against the backdrop of the drop in oil prices, Asian markets also fell sharply on 9 March: the Nikkei index fell by 5%, the Hang Seng by 3.5%, and the Australian ASX 200 by more than 6%.

Privatization

Salt monopolist Artyomsol and State Food and Grain Corporation readied for sale

The Ukrainian government has abolished the monopoly on salt production in Ukraine. SE Artyomsol is set to be privatized.

The Cabinet of Ministers will also transfer the enterprise State Food and Grain Corporation of Ukraine for privatization.

The government also transferred the Bolshevik Plant(JSC First Kyiv Machine-Building Plant) and the SJSC Bread of Ukraine for privatization.

Coronavirus

Travel industry could suffer losses of USD 1 trillion

Due to the coronavirus outbreak, current losses incurred by the global tourism industry amount to USD 600 million, and by the end of 2020 they could grow to USD 1 trillion.

This was stated by Bulut Bagci, head of the World Tourism Forum Institute. He stressed that 50 million people around the world employed in the tourism industry could lose their jobs.

According to him, global tourism market generates an average of USD 1.7 trillion annually.

EU to allocate EUR 750 billion to overcome adverse effects of pandemic

The European Central Bank will allocate EUR 750 billion to counter the challenges the eurozone faces due to the coronavirus pandemic.

The issue here is a new temporary program for public and private sector securities purchase to counter serious risks arising to the transmission mechanism of monetary policy and forecasts for the eurozone due to the pandemic.

The total volume of the new Pandemic Emergency Purchase Program will be EUR 750 billion. The purchase will be carried out by the end of 2020 and include all categories of assets listed in the existing purchase program.

JPMorgan expects imminent global recession

The financial agglomerate expects the ongoing pandemic to cause a deep recession in the US and European economies as early as this summer.

JPMorgan forecasts made in recent weeks have changed as the outbreak has spread around the world and caused the worst stock market collapse of recent decades.

According to JPMorgan forecasts, the US economy may fall by 2% in the first quarter and by 3% in the second, while the eurozone economy may decrease by 1.8% and 3.3% in the same periods.

Cancellation of major sport, cultural, and business events will further reduce consumption spending, and the uncertainty related to the virus will hinder a coordinated economic restart.

Sharp price fluctuations on the financial markets and falls in asset prices will also contribute to the economic downturn over the next two quarters.

The banks economists have noted that the key measure to avoiding an even stronger blow to global growth is for the authorities to introduce incentive measures: limiting stress in the financial market and supporting consumer demand through monetary policy.

Capitalization of global technological giants sinks

The capitalization of American company Apple has fallen below USD 1 trillion, which means Microsoft remains the only company with a market value above this amount.

Against the backdrop of the spread of the coronavirus and fall in the global smartphone market by 38% in February, Apple shares fell below USD 1 trillion in March for the first time since March 2019. Microsoft shares also fell by 28% in recent weeks, with the companys capitalization falling to USD 1.04 trillion.

The capitalization of Amazon is currently USD 924 billion and that of Alphabet is USD 700 billion.

M&A

Europe remains a magnet for international dealmakers

The latest edition of the CMS and EMIS Emerging Europe M&A Report reveals:

Deal volumes across emerging Europe fell by 6.5% in 2019.

Foreign investment surged, with cross-border M&A increasing by 14.6% (1,163 deals).

Private equity investments reached a record high with 318 deals, accounting for 16% of all deal-making.

Telecoms & IT outperformed manufacturing as the second largest sector by volume (300 deals in 2019, compared with 279 in 2018) and claimed seven out of the top 20 deals by value.

Real estate and construction remained the most active sector with 378 deals and was also the sector with the highest overall deal value (EUR 16.6 billion).

Ukraine appears to be a country to watch with transaction volumes increasing by 26% and transaction values increasing by 26.3%, compared with 2018.

The deal count fell in Poland and the Czech Republic, but the overall deal value was up in Poland by 68%

There has been a marked increase in cross-border M&A deals, which now account for nearly 60% of all transactions. In-bound investment originating from outside the region witnessed particularly strong growth. The US was the clear leader in international investment in terms of transaction numbers, clocking up 122 deals a 37% increase on 2018. In-bound investments from UK-based companies also increased (+9%), as did investment from other Western-European countries, including Germany (+17%), France (+19%) and Spain (+133%).

Investment from Asia into emerging Europe also surged in 2019, accounting for 15.9% of M&A value. The overall value has more than doubled y-o-y, reaching EUR 11.5 billion in 2019.

Chinas presence in the region continues to strengthen, and it was the largest investor in emerging Europe by value (EUR 6.4 billion more than double the value of its investment in 2018). The region also saw a rise in the value of investment from Japan (EUR 2.9 billion, +112%), Singapore (EUR 607 million, +601%) and South Korea (EUR 717 million, +1,093%).

Private equity continued to build on its strong roots in 2019 and hit a record high of 318 deals (up from 307). The sector was responsible for 16.2% of all M&A deals (a 3.6% increase compared with 2018), coming to a value of EUR 22.66 billion. Activity in private equity was well-spread across the region, and is credited as one of the key drivers behind the rise in deals across many of the regions most active sectors, including: telecoms and IT, manufacturing and wholesale and retail. Private equity buyers and sellers were involved in five EUR 1 billion-plus deals across the region in 2019 the largest being the EUR 1.9 billion purchase of Central European Media Enterprises by PPF Group of the Czech Republic.

Ukraine has been identified as one of the countries to watch out for in terms of foreign investment in 2020, as the reforms adopted by new president Volodymyr Zelenskiy begin to kick in. While the deal flow remained almost flat in larger M&A markets (e.g., Russia and Turkey), in Ukraine transaction activity (+26%) and values (+26.3%) were at their highest levels since 2013.

Stock Market

US stock market experienced biggest crash since 1987

On 12 March the escalation of the coronavirus situation caused the largest crash of indices on the US stock market (Dow Jones, S&P 500) since 1987.

Following trading, indices fell into the so-called bear zone. That is how a situation when prices fall by more than 20% is called.

The S&P 500 Index, which includes the 500 largest companies in the world, fell by 9.5% that day. The US stock market lost 26.7% from the highest point established as late as the previous month.

The Dow Jones Industrial Average lost nearly 10% of its value. This is the biggest loss since its fall by 23% on Black Monday in 1987. Thus, the unprecedented growth of indices, which lasted for 11 years, has ended.

Banking & Finance

State Affordable Loans program at 5-7-9% begins to operate

State-ownedbank PrivatBank began accepting preliminary applications from 2 March for preferential loans under the state Affordable Loans program at 5-7-9%, which is intended for startups.

Within the programs framework, Ukrainian entrepreneurs can receive a loan (or several loans) of up to UAH 1.5 million for the creation and development of a business for a period of up to 5 years.

The state compensates the entrepreneur part of the interest on the loan, with rates ranging from 5% to 9% per annum, depending on the number of jobs created, with an option of a quarterly interest rate reduction.

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